Assessment of the Reserve Bank Information and Transfer … · 2020. 6. 11. · Assessment of the Reserve Bank Information and Transfer System May 2020 Contents 1. Executive Summary

Assessment of the Reserve Bank

Information and Transfer System

May 2020

Contents

1. Executive Summary 1

2. Summary and Review of Ratings and Recommendations 2

3. Material Developments 5

Box A: Impact of COVID-19 on the operation of RITS 7

Appendix A: Background Information 13

Appendix B: Detailed Assessment of the Reserve Bank Information and Transfer

System 23

Abbreviations 67

ASSESSMENT OF THE RESERVE BANK INFORMATION AND TRANSFER SYSTEM| MAY 2020 1

1. Executive Summary

Purpose This report is an assessment of the Reserve Bank Information and Transfer System (RITS), which is operated by the Bank’s Payments Settlements Department. The assessment is against the Principles for Financial Market Infrastructures (the Principles), which were developed by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).1 This Assessment has been carried out in accordance with the approach and rating system set out in the Principles for Financial Market Infrastructures: Disclosure framework and assessment methodology (the Disclosure Framework) produced by CPMI and IOSCO in December 2012 and CPMI and IOSCO’s Application of the Principles for Financial Market Infrastructures to Central Bank FMIs, published in 2015.2,3 The Assessment was independently prepared by the Bank’s Payments Policy Department and endorsed by the Payments System Board.

This report covers the period from April 2019 to March 2020.

Conclusion This Assessment concludes that at end March 2020 RITS observed all the relevant Principles, except for Principle 17 (Operational Risk), which it broadly observed.

Recommendations and oversight focus for the coming assessment period

Payments Policy Department recommends that the Bank complete implementation of initiatives to support the continued operational stability of RITS as part of its Technology Stability Improvement Program.

The Bank has fully addressed the recommendations from the 2019 Assessment.

As part of its ongoing oversight process, Payments Policy Department will:

continue to monitor developments designed to ensure that RITS remains resilient in the face of evolving cyber-security threats. Specifically, Payments Policy Department will monitor progress in the continued exploration of enhancements to the ability to recover RITS from cyber attacks in a timely manner

monitor the ongoing response of the Bank to the COVID-19 pandemic.

1 The Bank’s Policy Statement on the Supervision and Oversight of Systemically Important Payment Systems is available

at .

2 See CPSS-IOSCO (2012), Principles for Financial Market Infrastructures: Disclosure framework and assessment methodology, December. Available at .

3 See CPMI-IOSCO (2015), Application of the Principles for financial market infrastructures to central bank FMIs, August. Available at .

https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.htmlhttps://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.htmlhttp://www.bis.org/cpmi/publ/d106.htmhttp://www.bis.org/cpmi/publ/d130.pdf

2 RESERVE BANK OF AUSTRALIA

2. Summary and Review of Ratings and

Recommendations

RITS is Australia’s high-value payments system, which is used by banks and other approved institutions to

settle their payment obligations on a real-time gross settlement (RTGS) basis.4 RITS is owned and operated

by the Reserve Bank. The Bank seeks to ensure effective oversight of RITS by separating its operational and

oversight functions, as well as by producing transparent assessments against international standards. This

Assessment has been produced by the Bank’s Payments Policy Department, which is the functional area

responsible for oversight of the Australian payments system. In undertaking the Assessment, Payments

Policy Staff worked closely with and drew on information provided by Payments Settlements Department,

the functional area responsible for operating RITS. Staff also sought feedback from other departments

within the Bank, including those responsible for providing technology services for RITS (see section A.3 for

further background on the governance and oversight of RITS). This report has been approved by the

Payments System Board.

This Assessment focuses on the critical services provided by the Bank as operator of RITS; in particular,

RITS’s role as a wholesale RTGS system, as it is this role that makes RITS a systemically important payment

system.5 Currently, the Bank considers that RITS is the only domestic systemically important payment

system for which an assessment against international principles is necessary.6 This view reflects the fact

that RITS:

processes an aggregate value of Australian dollar payments that is high relative to other payment

systems

mainly handles time-critical, high-value payments

is used to effect settlement of payment instructions arising in other systemically important financial

market infrastructures.

The Fast Settlement Service (FSS), which settles transactions submitted via the New Payments Platform

(NPP) feeder system, is also established under the RITS Regulations. However, the focus on the FSS for this

assessment is limited to its interaction with the core (wholesale) RITS system.7 A similar approach is taken

with the role RITS plays in the settlement of interbank payment obligations arising from net settlement

systems, for example, those relating to cheque, direct entry and card transactions arising from the Low

Value Settlement Service (LVSS).8

4 This means that individual payments are processed and settled continuously and irrevocably in real time. 5 ‘RITS’ is used in this report to refer to the Bank as operator of RITS, as well as referring to the system itself. 6 The Bank’s Policy Statement on the Supervision and Oversight of Systemically Important Payment Systems is available

at .

7 The NPP and FSS are not currently being used in ways that would trigger assessment against the Principles, based on the criteria for systemic importance listed in the Policy Statement.

8 Further information on net settlement systems linked to RITS is provided in section A.5 of Appendix A.

https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.htmlhttps://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.html


This section summarises steps taken since the publication of the 2019 Assessment in relation to the

recommendations and areas of oversight focus identified in that assessment. It also summarises the ratings

and recommendations arising from the current Assessment.

2.1 Progress against 2019 Recommendations

In the 2019 Assessment, RITS was found to observe all of the relevant Principles other than Principle 17

(Operational risk), which it was found to broadly observe (Table 2).9

In that assessment, Payments Policy Department identified the following recommendations in order for

RITS to observe Principle 17 on Operational Risk.

The Bank should implement planned actions that support the ability of RITS to recover the operations

of critical IT systems within two hours of a disruption, including changes that support the automated

failover of the RITS database in contingency scenarios affecting the primary site and improve the

resilience of the FSS automatic failover process and systems.

The Bank should carry out a contingency test that assumes FSS does not failover automatically in a site

outage to validate that its business continuity plan supports the recovery of RITS within two hours of

a disruption in these circumstances.

The Bank should document its process for determining whether RITS or FSS should be prioritised for

restoration in circumstances where there is a potential resource conflict.

The Bank fully addressed the second and third of these recommendations and addressed most elements of

the first recommendation during the assessment period. The remaining action to fully address the first

recommendation is the implementation of a change that supports the automated failover of the RITS

database in contingency scenarios affecting the primary site, which was completed in June.10 For further

details on the Bank’s implementation of these recommendations, see section 3.1.2.

2.2 Developments in 2019 Areas of Oversight Focus

The 2019 Assessment also noted that Payments Policy Department would monitor progress in one area of

oversight focus, related to work to ensure that RITS remains resilient in the face of evolving cyber-security

threats. Table 1 summarises this area of focus and progress made during the assessment period.

Table 1: Summary of Developments in Areas of Oversight Focus

Area of focus Developments

Progress in the continued exploration of current and emerging technology that could enable further enhancements to the ability to recover RITS from cyber attacks in a timely manner.

The Bank is exploring a number of options that could enhance its ability to recover from a cyber disruption. This includes improvements to defences against a disruption and enhancements to monitoring and incident remediation. The Bank will also explore the capability to settle certain transactions outside of the core system and conduct some limited testing of new technology via the Bank’s innovation lab. This work is expected to continue into the next assessment period.

9 In its assessment, Payments Policy Department has applied the approach and rating system set out in the Disclosure

Framework. ‘Observed’ is the highest rating within this framework and is applied when Payments Policy Department assesses that ‘(An) FMI observes the principle. Any identified gaps and shortcomings are not issues of concern and are minor, manageable and of a nature that the FMI could consider taking them up in the normal course of its business.’ The full rating scale is set out in Appendix B. A rating of ‘broadly observed’ is applied when Payments Policy Department assesses that ‘(An) FMI broadly observes the principle. The assessment has identified one or more issues of concern that the FMI should address and follow up in a defined timeline.’

10 This action will automate one element of RITS’ recovery process under specific scenarios but does not materially affect the ability to recover RITS within the two hour target.


2.3 2020 Ratings, Recommendations and Areas of Oversight

Focus

As of the end of March 2020, RITS was found to observe all of the relevant Principles other than Principle

17 (Operational risk), which it was found to broadly observe. To observe Principle 17 (Operational Risk),

Payments Policy Department recommends that the Bank complete implementation of initiatives to support

the continued operational stability of RITS as part of its Technology Stability Improvement Program.

In addition, as part of its ongoing oversight process Payments Policy Department will:

continue to follow up on developments in the work to ensure that RITS remains resilient in the face of

evolving cyber security threats. In particular, Payments Policy Department will monitor progress in the

exploration of enhancements to the ability to recover RITS from cyber attacks in a timely manner

monitor the ongoing response of the Bank to the COVID-19 pandemic.

Table 2: Ratings of Observance of the Principles(a)

Principle Rating

1. Legal basis; 2. Governance; 3. Comprehensive framework for the management of risks; 4. Credit risk; 5. Collateral; 7. Liquidity risk; 8. Settlement finality; 9. Money settlements; 13. Participant-default rules and procedures; 15. General business risk; 16. Custody and investment risks; 18. Access and participation requirements; 19. Tiered participation requirements; 21. Efficiency and effectiveness; 22. Communication procedures and standards; 23. Disclosure of rules, key procedures, and market data

Observed

17. Operational risk Broadly observed

12. Exchange-of-value settlement systems Not applicable

(a) Principles 6, 10, 11, 14, 20 and 24 are not relevant for payment systems.


3. Material Developments

This section draws out material developments relevant to RITS that have occurred since the 2019

Assessment. This Assessment covers the period from April 2019 to March 2020. Over this period, there have

been material developments that are relevant to the Principles concerning operational risk (Principle 17),

legal basis (Principle 1), access and participation requirements (Principle 19) and communication

procedures and standards (Principles 22). To complement this section, background information on how

RITS operates, activity and participation in RITS, and the operational performance of RITS over the

assessment period is set out in Appendix A. A detailed assessment of how RITS meets the Principles

(incorporating developments discussed in this section) is presented in Appendix B.

3.1 Operational Risk Management

This section discusses the material developments relevant to the operational risk management of RITS

during the assessment period. A summary of the impact of COVID-19 on the operation of RITS is included

in Box A.

IT operational stability review

In June 2019, the Bank completed a review of its IT operational practices following a number of new systems

coming into production across the Bank and some incidents that affected usual operations. The aim of the

review was to ensure the reliability of technology services and, in turn, the Bank's business operations,

including RITS. The scope of the review included the processes used to manage applications, software

development, infrastructure, changes, configuration, and releases and testing. The Bank engaged an

external consultant to provide assistance.

The review identified a number of findings for improving operational stability of the Bank’s key systems and

included a number of recommendations to address these findings. While the review did not identify any

significant concerns with the operational stability of RITS, the Bank has identified that implementation of

the review recommendations is necessary in order to reduce risks to the stability of systems supporting

RITS. The Bank has established an executive-level Technology Stability Steering Committee to oversee the

implementation of the review’s recommendations via a Technology Stability Improvement Program (TSIP).

The TSIP includes a number of initiatives aimed at improving the operational stability of RITS. These include:

Additional resourcing and training for IT roles supporting RITS. The review identified areas of

improvement in relation to staff resourcing and training to address workload and workforce capacity

concerns. In response, the Bank has increased staff resources that support RITS operations and carried

out additional training for IT staff working on key systems. The Bank will be implementing a broader

IT training and certification framework for key systems specialists in the next assessment period.

Improvements to software patching processes. The review identified some areas for improvement in

the current patching arrangements for software supporting RITS. The Bank is expected to implement

these actions over the coming assessment period and will also be implementing an upgrade to an

automation tool used to deploy RITS software updates.


Once implemented, Payments Policy Department will consider whether these initiatives have been

effective in addressing the findings of the IT operational stability review.

30 August 2018 power outage

On 30 August 2018, the Bank experienced a disruption to the power supplying the data centre at one of its

sites, which abruptly cut off technology systems operating from that data centre, including those supporting

RITS. Payment and settlement systems were gradually restored throughout the day, although backup

processing capability for RITS at the affected site was not fully restored until 8 September 2018. In light of

the lessons learned from that power outage, three recommendations were made in the 2019 Assessment

in order for RITS to observe Principle 17 on Operational Risk:11

The Bank should implement planned actions that support the ability of RITS to recover the operations

of critical IT systems within two hours of a disruption, including changes that support the automated

failover of the RITS database in contingency scenarios affecting the primary site and improve the

resilience of the FSS automatic failover process and systems.

The Bank should carry out a contingency test that assumes FSS does not failover automatically in a site

outage to validate that its business continuity plan supports the recovery of RITS within two hours of

a disruption in these circumstances.

The Bank should document its process for determining whether RITS or FSS should be prioritised for

restoration in circumstances where there is a potential resource conflict.

The Bank has fully addressed the first recommendation. In May 2019, the Bank implemented a software

update to fix the issue that had prevented the automatic failover of the FSS. The Bank had previously

implemented a temporary workaround in the event that the issue had reoccurred. The Bank has also moved

a server that supports the automated failover of the RITS database to a third site to remove the risk that

this server is also impacted by the same contingency that affects systems at a production site. In February

2020, the Bank completed preparations for moving the server. Implementation occurred in June 2020.

The Bank has fully addressed the second recommendation. In October 2019, the Bank conducted a

contingency test that simulated an outage to RITS and FSS services at the Bank’s Head Office and where the

FSS does not recover automatically at the alternate site. RITS was successfully recovered within the two-

hour recovery time objective, consistent with the Principles. FSS services were also recovered within the

two-hour recovery time objective. The Bank will continue to test its ability to resume settlement operations

within recovery time objectives, with the scope and scenario of each test reviewed annually.

The Bank has also fully addressed the third recommendation. In November 2019, the Bank finalised

documentation in relation to prioritising the recovery of RITS and FSS when the operation of both systems

is disrupted by an incident and there are not sufficient resources to restore both systems simultaneously.

The default approach is for RITS to be prioritised during its standard operating hours and for FSS to be

prioritised outside these hours (refer to A.6 in the Background Information for details on RITS’ operating

hours). The document notes that there may be circumstances in which it is appropriate to deviate from the

default approach and includes factors that should be considered in making such a decision.

11 A detailed description of the outage can be found in RBA (2019), ‘Assessment of the Reserve Bank Information and

Transfer System’, May, Section 3.1.1. The full report is available .

https://www.rba.gov.au/payments-and-infrastructure/rits/self-assessments/2019/material-developments.htmlhttps://www.rba.gov.au/payments-and-infrastructure/rits/self-assessments/2019/material-developments.html


12 The Bank also implemented other standard risk mitigation measures to protect the health and wellbeing of its staff. These

include deferral of international travel, increased cleaning of premises and self-isolation for staff that have had returned from overseas or been exposed to a high-risk situation.

c

Box A: Impact of COVID-19 on the operation of RITS

In March 2020, the Bank’s Executive Committee activated contingency arrangements in response to the spread of COVID-19. The Bank adopted a range of measures to safeguard the health of Bank staff and the Bank’s operations, including the operation of RITS.

A pandemic event has the potential to cause significant operational disruption for operators of systemically important financial market infrastructures (FMIs) such as RITS. A pandemic event may cause significant staff absences as a result of staff contracting the illness, needing to fulfil carer responsibilities or due to travel restrictions preventing staff from travelling to their usual place of work. Such an event could affect the ability of the FMI to continue operating systems or to recover normal operations in the event of an outage. Participants and service providers to the FMI are likely to face similar risks, potentially exacerbating any operational disruption. It is therefore critical that FMIs have effective plans in place to respond to such an event.

RITS is designed to operate with high levels of technical resilience and is supported by mature business continuity arrangements. The technical systems underpinning the service, and the staff responsible for operating and supporting RITS, are normally located at two geographically separate sites. RITS can operate from either site with data mirrored synchronously between the two sites.

In response to the COVID-19 outbreak the Bank has activated a number of business continuity measures in order to maintain continuity of operations, reduce the risk of infection to key staff and in response to broader social isolation measures. These measures include successfully transitioning the majority of its staff to work-from-home arrangements while maintaining a small onsite presence and separating critical staff, responsible for the operation and support of RITS, between the Bank’s Head Office and Business Resumption Site (BRS).12 Key support staff, including IT teams, have been able to work from home to support RITS remotely. The Bank has also identified, and in some instances trained, additional staff to perform critical functions so that there is a ‘reserves bench’ that can be rotated into critical roles in circumstances where a large number of critical staff are simultaneously unable to work.

The smooth operation of RITS is also dependent on the operational reliability and resilience of RITS participants. The Bank sent a RITS Advice to RITS members advising them of the Bank’s contingency arrangements and to remind members of their minimum staffing requirements for users and administrators to ensure effective management of their ESA and settlement activities. Members were also advised to test their work-from-home capabilities for critical staff if they had not already done so. The Bank has engaged with major RITS feeder systems (e.g. Austraclear and Property Exchange Australia Limited (PEXA)) to discuss contingency arrangements to manage the impact of COVID-19 on operations. No changes have been made to the usual RITS operating arrangements, including session times. However, there has been elevated activity in RITS. RTGS activity in RITS recorded above average settlement values in March 2020, with RITS settling the highest value on record of $374 billion on 18 March. This is in line with increased trading activity across a range of financial markets as investors responded to new information on the risks presented by the COVID-19 pandemic. The payments associated with many of these trades ultimately settle in RITS.


Cyber resilience

Society for Worldwide Interbank Financial Telecommunication (SWIFT)-related security controls

As a user of the SWIFT messaging network, the Bank is required to meet security standards set out in

SWIFT’s Customer Security Controls Framework (CSCF). The CSCF is a set of mandatory and advisory

controls for users of the network and provides a baseline security standard across the network. All

customers are required to annually attest to their compliance with these controls.

During the assessment period, the Bank commissioned an external firm to conduct an independent

assessment of its compliance with the SWIFT controls. 13 The assessment found the Bank to be fully

compliant with the mandatory controls.

Evaluating current and emerging technologies to improve recovery times

Consistent with cyber resilience guidance developed by CPMI and IOSCO, the Bank continues to monitor

current and emerging technology options that may further enhance the capability of RITS to safely resume

critical operations within two hours of a cyber disruption. Following a review in late 2017, the Bank decided

not to pursue implementation of an additional full-scale recovery solution that is technologically different

from RITS. The Bank is continuing to explore a range of other options to protect RITS from cyber disruption.

This includes improvements to defences against a disruption, enhancements to monitoring, and incident

remediation. The Bank will also explore the capability to settle certain transactions outside of the core

system and conduct some limited testing of new technology via the Bank’s innovation lab.

13 This independent assessment was conducted against the 2019 version of the CSCF. This version of the CSCF included

three additional mandatory controls.

Graph 1

Despite the elevated activity in March, RITS has continued to meet capacity demands and has not experienced any incidents affecting service availability. In the event of an incident affecting normal operations of RITS, the usual communications channels and incident management procedures would apply. In the event of a major incident affecting Bank systems, there may be some additional coordination challenges given the number of staff likely to be working from home across the industry. To improve preparedness for handling a possible RITS incident in the current environment, the Bank will rehearse some of its incident management arrangements in a work-from-home scenario.


Industry table-top exercise

In December 2019, the Bank conducted a cyber table-top exercise with a range of industry participants. The

exercise was an interactive session in which participants were asked to respond to a hypothetical cyber

scenario. The aim of the exercise was to rehearse the existing industry contingency procedures, focusing

on communication and collaboration arrangements in the event of an attack on participants’ payments

systems. The Bank is engaging with participants and AusPayNet to implement improvements identified

during the exercise.

CPMI wholesale payments endpoint security strategy

In May 2018, CPMI released the report Reducing the Risk of Wholesale Payments Fraud Related to Endpoint

Security. The Bank already meets elements of the strategy described in this report and is in the process of

implementing further enhancements to endpoint security as an ongoing process of continuous

improvement. 14

During the assessment period, the Bank engaged an external vendor to conduct a risk assessment of RITS’s

endpoints and recommend enhancements to the current security requirements. The Bank will consider the

outcomes of this review and, where appropriate, implement recommendations.

Enhancing contingency arrangements for high-value feeder systems into

RITS

As part of its business continuity arrangements, RITS has arrangements in place to allow clearing of

transactions from SWIFT Payment Delivery System (PDS) and Austraclear feeder systems in the event that

RITS is unavailable for an extended period. This reflects the importance of these two systems, which

comprise the majority of settlement values that occur in RITS each day.

In the event that RITS is unavailable and a same-day recovery of normal operations is not possible,

payments initiated via the SWIFT PDS can be settled in RITS using high-value clearing system (HVCS) fall-

back arrangements. These arrangements involve the netting and settlement of SWIFT PDS transactions in

a multilateral batch in RITS on the following day.

In the unlikely event that RITS is unavailable and same-day recovery of normal operations is not possible,

the Bank and ASX can agree that the Austraclear system will switch to ‘Austraclear Assured Mode’. The

Austraclear Assured Mode provides for settlement of Austraclear transactions in a multilateral net batch in

RITS on the following day.

During the assessment period, the Bank in collaboration with the industry commenced work on enhancing

the HVCS contingency arrangements to ensure the smooth functioning of interbank clearing in the event

that RITS or a participant is unavailable. Work on enhancing these arrangements will be continued

throughout the next assessment period.

ASX has also been working with Austraclear participants and the Bank on reviewing and enhancing the

Austraclear Assured Mode. Further work is expected to be conducted over the coming assessment period.

3.2 Legal Basis

The Bank has a requirement that all overseas-domiciled RITS members provide an independent legal

opinion that the RITS Membership Agreement is enforceable in their home jurisdiction. Following the

14 For an overview of the report, see RBA (2018), ‘Box A: Endpoint Security’, ‘Assessment of the Reserve Bank Information

and Transfer System’, May, pp 5–9. The full report is available at

https://www.bis.org/cpmi/publ/d178.htm


signing of new RITS Membership Agreements in 2017, the Bank has continued to work with foreign

members on the provision of legal opinions that meet the Bank’s requirements, in cases where members

had not provided a legal opinion previously or their previous opinion required updating. The Bank has

received and accepted legal opinions from the majority of foreign members and expects to complete this

process during the next assessment period.

3.3 Access and Participation

Access to Exchange Settlement Accounts

During the assessment period, the Bank reviewed its policy on access to its ESAs and published an updated

ESA Policy in July 2019. The changes to the policy aim to ensure that the ESA Policy continues to promote

competition in the market for payment services by broadening the categories of payment service providers

that are eligible to apply for an ESA, while also ensuring that operational, liquidity and other risks are

appropriately managed. Some of the changes were motivated by developments in technology that have

allowed a wider range of non-authorised deposit-taking institutions (non-ADIs) (including ‘fintechs’) to

compete directly with incumbents in the payments system. As a result, the number of entities applying for,

or enquiring about, an ESA has increased.

The key changes to the ESA Policy included:

clarifying the requirements for an applicant to demonstrate an adequate understanding of the liquidity

management, operational and business continuity requirements for operating an ESA, including the

impact that the applicant's operational, liquidity and business continuity arrangements have on other

RITS members

a requirement for an applicant's description of its business model to include a description of the types

of customers it services and the types of payment services it provides. In addition, the application must

include an attestation that the applicant complies with all applicable laws in Australia and in any other

jurisdiction in which it provides payment services

a provision allowing the Bank to commission a report relating to the conduct and standing of the

applicant, or its directors, key management personnel, shareholders or other related entities

a provision allowing the Bank to request an applicant to obtain, at its own cost, a report from an

independent expert approved by the Bank assessing the applicant's policies and procedures related to

sanctions and Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF), and the

applicant's compliance with sanctions and AML/CTF legislation and other regulatory requirements

that the Bank retains the discretion to decline an application where, in its view, the provision of an ESA

would adversely affect the reputation of the Bank

a requirement that any Australian-licensed Securities Settlement Facility (SSF) that the Bank

determines to be systemically important and that faces liquidity risk from securities settlement related

activities must hold its own ESA

a provision to allow holders of an Australian clearing and settlement facility licence to apply for an

exemption from the requirement that ESA holders maintain management and resources in Australia.

This is subject to the entity having appropriate management and operational resources in an approved

offshore location. Such exemptions would be determined on a case-by-case basis, at the Bank’s

discretion, and would be reviewed periodically.


Property settlement

During the assessment period, the Bank approved ASX Financial Settlements Pty Limited (ASXFS) as

administrator of the ASX Financial Settlements Batch. ASXFS submits to RITS batches of multilaterally netted

interbank obligations arising from property transactions completed using the electronic conveyancing

system managed by Sympli Australia Pty Limited (Sympli). Funds are initially reserved in the ESAs of paying

participants in the batch while title changes are lodged with the relevant land titles office by Sympli.

Following acceptance of the title lodgement, ASXFS requests settlement of the batch. The ASX Financial

Settlements Batch is the second property batch in RITS, alongside the PEXA Batch.

3.4 Communication Procedures and Standards

Strategy for ISO 20022 payment messaging migration

In 2018, SWIFT announced plans to cease ongoing support of some categories of message type (MT)

messages used by payment systems globally, including by RITS, and migrate them to the International

Organization for Standardization (ISO) 20022 standard by late 2025. SWIFT's goal is to fully migrate all

payments and reporting traffic to ISO 20022, allowing the global community to use the same standard for

all payments flows.

In April 2019, the Bank and the Australian Payments Council (APC), released an Issues Paper to industry

seeking stakeholder views on the migration of messaging used in some parts of the Australian payments

system to the ISO 20022 standard and to assist the industry in coming to agreement on key strategic

decisions for an ISO 20022 migration project.15 This was followed by a Responses and Options Paper in

September 2019 that summarised responses and put forward some potential implementation options for

consideration, based on the same strategic issues outlined in the Issues Paper. 16

In February 2020, the final conclusions of the consultation, including the agreed project scope, migration

strategy, governance arrangements and timeline were published.17 The Conclusions Paper confirmed that

the scope of the industry-led migration will be limited to HVCS clearing and associated settlement

messages.18 The paper also set out the timeline for migration. During the build and test phase of the project,

participants will need to build their systems to support ISO 20022 messaging and participate in industry-

wide testing. The Bank will support settlement processing of both existing MT messages and the new ISO

20022 HVCS messages in RITS during a coexistence phase. By the end of this coexistence phase, participants

will need to have fully completed their migration to ISO 20022.

AusPayNet has established a steering committee that will have overall responsibility, accountability

and authority for the project’s delivery. The Steering Committee will provide regular updates on

15 RBA and the APC (2019), ISO 20022 Migration for the Australian Payments System – Issues Paper. Available at

16 RBA and the APC (2019), ISO 20022 Migration for the Australian Payments System – Responses and Options Paper. Available at

17 RBA and the APC (2020), ISO 20022 Migration for the Australian Payments System – Conclusions Paper. Available at

18 Separate to this migration, the Bank will migrate its proprietary Automated Information Facility (AIF) message formats to ISO 20022. The Bank will also engage with each of the existing RITS Batch Administrators to plan the migration of batch settlement messaging to ISO 20022 (excluding reservation batch settlement messaging; e.g. the PEXA Batch and the ASX Financial Settlements (ASXF) Batch).

https://www.rba.gov.au/publications/consultations/201904-iso-20022-migration-for-the-australian-payments-system/pdf/issues-paper.pdfhttps://www.rba.gov.au/publications/consultations/201904-iso-20022-migration-for-the-australian-payments-system/pdf/issues-paper.pdfhttps://www.rba.gov.au/publications/consultations/201909-iso-20022-migration-for-the-australian-payments-system-responses-options/pdf/consultation-paper.pdfhttps://www.rba.gov.au/publications/consultations/201909-iso-20022-migration-for-the-australian-payments-system-responses-options/pdf/consultation-paper.pdfhttps://www.rba.gov.au/publications/consultations/202002-iso-20022-migration-for-the-australian-payments-system/pdf/iso-20022-migration-for-the-australian-payments-system-conclusions-paper.pdfhttps://www.rba.gov.au/publications/consultations/202002-iso-20022-migration-for-the-australian-payments-system/pdf/iso-20022-migration-for-the-australian-payments-system-conclusions-paper.pdf


progress to the APC, the Payments System Board (PSB), the AusPayNet Board and the HVCS

Management Committee.


Appendix A: Background Information

This Appendix describes the operational arrangements and key design features of RITS and presents an

overview of the operational performance of RITS over the assessment period. Material changes to RITS

since the previous assessment are discussed in section 3 of this report.

While the RITS Regulations govern both the core RITS service and FSS, the FSS operates as a separate service

from the core RITS service. 19 Except where otherwise noted, this Appendix provides background

information on the core RITS service.

A.1 Activity and Participation

RITS is used to settle time-critical wholesale payments for other FMIs: Australian dollar pay-ins to or pay-

outs from CLS Bank International (CLS); margin payments to CCPs; and debt and equity settlement

obligations arising in securities settlement systems. RITS is also used to make wholesale payments (cash

transfers) between members. RITS also settles the interbank obligations arising from non-cash retail

payments.

In addition to settling individual wholesale payments, RITS also facilitates the settlement of net interbank

obligations arising from the equity market (through CHESS, the equities settlement system operated by ASX

Settlement), retail payment systems and the property settlement system (see section A.5 for more

information on these systems). Equities, property settlement payments and retail transactions are settled

as batch payments. The majority of the value of retail payments settled in RITS is from the direct entry (DE)

system.

In late 2019, RITS commenced settling obligations arising from property transactions completed using the

electronic conveyancing system managed by Sympli Australia Pty Limited (Sympli). Both Sympli and the

existing PEXA electronic conveyancing system can submit linked property transactions for settlement as

individual multilateral net batches within RITS.

Agency arrangements for wholesale RTGS payments

Under the Bank’s ESA policy, authorised deposit-taking institutions (ADIs) that account for 0.25 per cent or

more of the total value of wholesale RTGS transactions, and systemically important CCPs, are required to

settle their Australian dollar obligations in RITS using their own ESAs (see section A.9 for further details on

access and participation in RITS). An ADI with a share of transactions of less than 0.25 per cent of the total

value of wholesale RTGS transactions is permitted to use an agent to settle its transactions. ADIs that elect

to use an agent to settle their transactions have the option of holding a dormant ESA for contingency

purposes.

Since RITS is an RTGS system, members need access to additional liquidity (relative to a deferred net

settlement system) in order to settle payments individually. Liquidity can be sourced from members’

19 The Bank does not presently assess FSS against the Principles. The Bank will continue to monitor developments in NPP

and the FSS, and periodically review whether an assessment against the Principles should be conducted in future.


opening ESA balances and additional funds made available to members by the Bank via its intraday liquidity

facility (see section A.7 for details).

The aggregate of opening ESA balances is primarily determined by the Bank’s open market operations

(OMOs) and liquidity provided under open repos. Since March 2020 and the announcement of a

comprehensive package of measures to support the Australian economy during the COVID-19 pandemic,

aggregate ESA balances are also determined by the amount of purchases of Australian government bonds

in the secondary market and funding provided to ADIs under the Term Funding Facility (TFF). Open repos

facilitate the settlement of same-day DE payments, as evening settlement obligations arising from the DE

system are unknown before the close of the interbank cash market. Open repos also provide liquidity for

FSS settlements of NPP payments initiated after 4.45 pm Australian Eastern Standard Time

(AEST)/Australian Eastern Daylight-saving Time (AEDT) on business days, as well as on weekends and public

holidays. Average liquidity in RITS increased sharply following the introduction of open repos in 2013. This

increased further in March 2020 following measures undertaken to support the economy and functioning

of financial markets in response to COVID-19.20

System liquidity plays a role in the timely settlement of RTGS transactions. In general, settling payments

earlier in the day is desirable as it limits the potential adverse consequences if a participant or RITS were to

experience an operational issue late in the day. The liquidity buffer created by open repos results in higher

levels of system liquidity being available earlier in the day and therefore contributes to the earlier

settlement of payments in RITS.

A.2 Operational Risk

RITS availability

A key operational target is for RITS to be available to its members at a minimum of 99.95 per cent of the

time. Availability is measured relative to the total number of hours that the system is normally open for

settlement (see section A.6). In 2019, RITS availability was 99.952 per cent (Table A.1).

Table A.1: RITS Availability

Per cent

RITS availability(a)

2019 99.95

2018 99.83

2017 99.98

2016 99.99

2015 99.83

Note: Availability in 2019 represents the average of the five component service availabilities.

RITS cash transfers: 99.96

SWIFT payments: 99.94

Austraclear: 99.95

Batch settlement services: 99.95

LVSS: 99.96

(a) In 2018, the methodology for calculating RITS availability changed to a simple average of availabilities calculated for

20 For more information on these measures, see RBA (2020), ‘Supporting the Economy and Financial System in Response to

COVID-19’. Available at .

https://www.rba.gov.au/covid-19/


each of the five component services of RITS. Availability for 2017 and earlier years relates to Bank-operated systems.

Source: RBA

In addition to its availability target, RITS also has capacity targets. These include a:

processing throughput target, which aims to ensure that RITS is able to process peak-day transactions

in less than two hours (assuming no liquidity constraints)

projected capacity target, which specifies that RITS should be able to accommodate projected volumes

18 months in advance with 20 per cent headroom.

RITS is regularly tested against these targets and continues to meet them.

External dependencies

The Bank maintains agreements with SWIFT, Austraclear, and other feeder systems that set out operational

and support arrangements. RITS also uses a range of utility service providers. To manage dependencies on

these providers, both the main and backup sites have an uninterruptable power supply and a backup power

generator system. The majority of the external communications links to data centres are via diverse paths.

The efficient operation of RITS is also dependent on the operational reliability and resilience of its members.

An operational disruption at a member could prevent it from sending payment instructions to RITS. This

could in turn cause liquidity to accumulate in that member’s ESA, forming what is known as a ‘liquidity sink’,

and preventing liquidity from being recycled through the system efficiently. Recognising this

interdependency, the Bank publishes Business Continuity Standards for direct participants in RITS. These

standards aim to promote high availability in RITS payments processing operations, requiring both resilience

of system components and rapid recovery if failover to alternative systems is required.21

The Bank monitors compliance with the Business Continuity Standards on an ongoing basis. Each member

that operates an ESA or is a batch administrator is required to submit an annual self-certification statement

against the standards. As at the end of 2019, 63 RITS members self-certified, with 14 partly compliant with

the standards. Where members are partly or non-compliant, the Bank asks members to provide a timetable

to achieve compliance and follows up progress with members.

A.3 Governance and Oversight

RITS is owned and operated by the Bank. Since it is not operated as a separate legal entity, the management

and operation of RITS fall under the governance structure of the Bank and are therefore subject to its

normal oversight, decision-making and audit processes. The Bank articulates specific objectives in relation

to its operation of RITS on its website.22 These are consistent with the high-level objectives of the Bank,

which emphasise the stability of the broader financial system and the welfare of the Australian people. The

Bank accordingly aims to provide infrastructure through which settlement obligations arising from the

exchange of high-value payments and debt securities can be completed in a safe and efficient manner.

The governance structure as it applies to RITS is shown in Figure A.1. In accordance with the Reserve Bank

Act 1959, the Governor is responsible for the management of the Bank, and is therefore ultimately

responsible for the operation of RITS. The Governor is assisted and supported in this responsibility by the

21 For more information on the participant Business Continuity Standards, see RBA (2013), ‘Box E: Participant Business

Continuity Standards’, 2013 Self-assessment of the Reserve Bank Information and Transfer System, p 27. 22 Available at .

https://www.rba.gov.au/payments-and-infrastructure/rits/about.html


Executive Committee, which comprises senior executives. Day-to-day operations, liaison with members,

and the ongoing development of RITS are delegated to the Bank’s Payments Settlements Department.

RITS is also subject to oversight by the Bank’s Payments Policy Department, within the policy framework

for which the Payments System Board has ultimate responsibility. 23 The Executive Committee has

established an internal FMI Review Committee to govern oversight activities within this framework. This

committee is chaired by the Assistant Governor (Financial System) and includes at least a further five senior

members of Bank staff with relevant experience.

Figure A.1: Reserve Bank Governance and Oversight Structure for Payments System Issues

Source: RBA

A.4 Design Features

ESA funds are allocated between the core RITS service and the FSS. The RITS balance is used for funding

high-value payments and multilaterally netted settlements. The FSS balance is used for funding the real-

time settlement of consumer and business NPP payments. Members can control the use of liquidity within

the system by setting parameters to automatically allocate ESA funds to or from the FSS. For example, there

is functionality allowing members to set criteria (upper, lower and reset point values) that are used by RITS

to automatically generate allocation transfers between members’ FSS and RITS balances (Figure A.2).24

23 Payments Policy Department and Payments Settlements Department are separate departments in the Bank’s

organisational structure, with separate reporting lines up to and including the level of Assistant Governor. 24 For more information on the NPP and FSS, see RBA (2018), ‘Box B: The New Payments Platform and the Fast Settlement

Service’, ‘Assessment of the Reserve Bank Information and Transfer System’, pp 7–9. Available at .

https://www.rba.gov.au/payments-and-infrastructure/rits/self-assessments/2018/pdf/2018-assess-rits.pdf


Figure A.2: ESA Funds Allocation

The core RITS system is designed to enhance efficiency in the use of liquidity within the system. Wholesale

transactions in RITS are settled on a central queue. The RITS central queue uses a ‘next-down looping’

algorithm to continuously retest unsettled payments in order of submission (Figure A.3). If the transaction

being tested for settlement cannot be settled individually using the RITS balance, the auto-offset algorithm

searches for up to 10 offsetting transactions (based on the order of submission) between the pair of

members and attempts to settle these simultaneously.25 Members can also nominate specific offsetting

payments to be settled simultaneously to assist in managing client credit constraints; this functionality is

known as ‘targeted bilateral offset’.

Figure A.3: RITS Queue

Source: RBA

Members have access to a range of real-time information in RITS to enable them to manage their liquidity

efficiently and effectively. In particular, members have access to information on their current ESA balances,

settled payments and receipts, queued inward and outward transactions, the value of first- and second-leg

intraday repos, their projected end-of-day ESA balances, and their FSS balance and RITS/FSS allocation

transfer facilities.

25 Payments will only trigger ‘auto-offset testing’ if they have been in the queue for at least one minute.

ESA Position(RITS Member A)

FSS balance RITS balance

Upper trigger point

Reset point

Lower trigger point

FSS transactions RITS transactions

Allocation transfer

FSS withdrawal

FSS top-up

RITS balance adjusts

Allocation transfer

Transaction

Transaction

Transaction

Transaction

Transaction

Settle or leave on queue






RITS also has features that allow members to efficiently manage and conserve liquidity. Members can use

‘sub-limits’, which they can change at any time during the settlement day, to reserve liquidity for priority

payments. There are three payment statuses available to members, which determine how wholesale RITS

individual transactions draw on liquidity:

Priority payments are tested against the full RITS balance less funds reserved for property settlement.

Active payment instructions are settled as long as the paying institution has sufficient funds in their

RITS Balance above the sum of the member’s specified sub-limit and any property settlement

reservations.

Payments with a deferred status are not tested for settlement until their status is amended.

This functionality can be accessed through either the RITS User Interface or via SWIFT messages. Members

can choose to change the payment status of each payment individually, or they can choose to automatically

set the status of all payments of a particular type, above and below a member set threshold.26

A.5 Systems Linked to RITS

Wholesale RTGS payment instructions can be submitted to RITS directly as RITS cash transfers, or through

two feeder systems: SWIFT PDS and Austraclear. The SWIFT PDS is a closed user group administered by

AusPayNet, which sets rules and procedures for clearing payments in Australia through its HVCS. The SWIFT

PDS is used primarily to make customer and interbank payments, with interbank settlement occurring

across ESAs in RITS. Austraclear transactions submitted to RITS for settlement generally represent the cash

legs of debt security transactions, which are settled on a delivery-versus-payment model 1 basis.27 Payment

instructions that are not associated with the settlement of securities transactions may also be sent for

settlement via the Austraclear system. Other FMIs with ESAs (i.e. CLS, the ASX CCPs and LCH.Clearnet

Limited (LCH)) use these feeder systems to settle Australian dollar obligations arising from the systems they

operate.

RITS also facilitates the multilateral net settlement of interbank obligations arising from other systems

(Table A.2). The settlement of obligations arising in the retail payment systems administered by AusPayNet

is facilitated by the Bank’s LVSS in RITS. All other multilateral net batches are administered by ‘batch

administrators’ and entered into RITS through its batch feeder functionality.28

Table A.2: List of Multilateral Net Batches in RITS

Linked system Underlying transaction types Governance and ownership

CHESS Batch Primarily equity security transactions The CHESS Batch is administered by ASX Settlement, which is owned by ASX Group. ASX Settlement is licensed as a clearing and settlement facility and is subject to the Bank’s Financial Stability Standards for Securities Settlement Facilities.

26 For example, a member may wish all small SWIFT transactions to be given an ESA Status of priority to allow them to settle

quickly out of the priority tranche of ESA funds; transactions above the member-set threshold could be given a status of active to allow manual liquidity management for these transactions.

27 That is, the cash leg of the transaction is settled on a gross basis simultaneously with the transfer of the security. 28 To ensure that a batch administrator can administer the batch in a safe and efficient manner, the Bank requires that it

meets certain risk-based requirements. For more information, see .

https://www.rba.gov.au/payments-and-infrastructure/rits/information-papers/eligibility-criteria-for-batch-administrator/https://www.rba.gov.au/payments-and-infrastructure/rits/information-papers/eligibility-criteria-for-batch-administrator/


Linked system Underlying transaction types Governance and ownership

Low-Value Settlement Service

Cheque, DE (including the BPAY system), Visa and ATM transactions

Each retail payment system has its own rules and procedures. These rules and procedures are determined by the system administrator (e.g. AusPayNet), in consultation with its members.

Mastercard Batch

Mastercard brand credit and debit card payments

The Mastercard Batch is administered by Mastercard International, which is a privately owned company incorporated in the US and listed on the New York Stock Exchange.

PEXA Batch Property transactions PEXA is owned by a consortium consisting of Commonwealth Bank of Australia, Link Market Services and Morgan Stanley Infrastructure.

eftpos Batch eftpos brand debit card payments The eftpos Batch is administered by the member-owned eftpos Payments Australia Limited.

ASX Financial Settlements Batch

Property transactions The ASX Financial Settlements Batch is administered by ASX Financial Settlements Pty Limited, which is owned by the ASX Group.

A.6 Operating Hours

Standard settlement hours in the core RITS service, as established by the RITS Regulations, are 7.30 am to

10.00 pm.29 Settlement of SWIFT and Austraclear transactions cease at 6.30 pm AEST and 8.30 pm during

AEDT (the first Sunday in October to the first Sunday in April).

Prior to 9.15 am, settlement in RITS is limited to the deferred net obligations settled in the 9.00 am

settlement process (during the 9.00 am processing session), and, before the 9.00 am settlement process,

settlement of RITS cash transfers, interbank Austraclear transactions, obligations for the Mastercard and

eftpos batches and DE government clearings. Other payment instructions can be submitted to RITS during

this time, but they are not tested for settlement until the daily settlement session commences at 9.15 am.

Further details can be found in Table A.3.

Table A.3: The Core RITS Day

RITS session Time window Transactions able to be settled

Morning settlement session

7.30am – 8.45am eftpos batch transactions

Mastercard batch transactions

Cash transfers

LVSS

9.00 am processing session

8.45am-9.15am LVSS

Cash transfers

Daily settlement session

9.15am-4.30pm All services(a)

29 During AEST, the 7.15 pm and 9.15 pm DE settlements occur after the close of the interbank cash market. However, during

AEDT, Austraclear and SWIFT transactions continue to be settled until 8.30 pm, so only the last DE settlement occurs outside normal banking hours.


RITS session Time window Transactions able to be settled

Settlement close session

4.30pm-5.15pm Settlement of queued transactions

Evening settlement session

5.15pm-10.00pm Cash transfers

Low value settlement service

SWIFT(b)

Property settlement batches (b)

Austraclear(b)

(a) Includes all batch transactions, LVSS, SWIFT, Austraclear, cash transfers (b) During winter these transactions are not able to be settled after 6.30 pm. During summer these transactions can settle until

8.30 pm. Property settlement batches include the ASX Financial Settlements Batch and the PEXA Batch. Source: RBA

There are also restrictions on the types of payments that can settle in the RITS evening settlement session.

Only ‘evening agreed’ settlement participants, as defined in the RITS Regulations, can participate fully in

the evening settlement session from 5.15 pm onwards. 30 Consequently, to allow the settlement of

remaining queued transactions at the end of the day session there is a 45-minute settlement close session.

At the end of the settlement close session at 5.15 pm, any remaining queued payments that are not flagged

as being ‘evening eligible’ are removed from the queue.

A.7 Liquidity Provision

To facilitate the settlement of payments in RITS, the Bank provides liquidity to members at low cost via its

Standing Facilities. Under these facilities, a member can enter into a repo with the Bank; a repo transfers

outright title of eligible securities to the Bank (upon purchase of securities) in return for a credit to the

member’s ESA, with an agreement to reverse the transaction at some point in the future. Standing facilities

are available to any RITS member that is ‘approved’ by the Bank’s Domestic Markets Department and settles

its payments across its own ESA.

There are three types of repos that can be performed under the Bank’s Standing Facilities:

Intraday repos. For these repos, both the sale and repurchase occur on the same day. They are

provided free of charge (except for a small settlement transaction fee), but must be reversed before

the settlement of Austraclear transactions ceases in RITS.

Overnight repos. In the exceptional case that a member is unable to reverse an intraday repo by the

end of the day, the transaction may, with the approval of the Bank, be converted to an overnight repo.

Interest would then be charged at 25 basis points above the cash rate target.

Open repos. This type of repo does not specify the date on which the transaction will be reversed. The

member retains the liquidity for use on future days. Open repos help members meet their settlement

obligations without having to actively manage their liquidity, particularly outside of normal banking

hours. Open repos were introduced to facilitate the settlement of evening DE payment obligations,

the size of which are unknown prior to the close of the interbank cash market and Austraclear. They

also support the settlement of NPP obligations arising in the FSS. For members that settle DE or NPP

obligations across their own ESA, the Bank determines a minimum position in open repos that the

30 RITS members do not have to be evening agreed if they only participate in DE and property settlements after 5.15 pm.


member should maintain.31 To the extent that these members retain matching funds against their

open repo position (subject to an allowance for variations in ESA balances arising from settlement of

DE and NPP obligations that occur outside of normal banking hours), those ESA balances are

compensated at the cash rate target. However, to preserve the incentive for RITS members to remain

active in the interbank cash market while it is open, ESA funds surplus to the ESA holder’s open repo

position (subject to the DE allowance) earn a rate rate 15 basis points below the cash rate target, while

any shortfall in funds incurs a 25 basis point charge.32

Members can also source liquidity through term repos and some outright transactions conducted in the

Bank’s OMOs. The overall amount of ESA funds available via these operations is set by the Bank to support

the implementation of monetary policy. These transactions usually involve counterparties selling debt

securities to the Bank either under repo or outright. Similarly, as part of the comprehensive package of

measures to support the Australian economy during the COVID-19 pandemic, the Bank purchases

government bonds in the secondary markets.

A.8 Credit Risk and Collateral

The Bank is not exposed to any credit risk from the settlement of wholesale payments in RITS, or from the

settlement of NPP payments in the FSS. Wholesale payments in RITS are settled using funds in members’

RITS Allocation and payments settled in the FSS use the member’s FSS Allocation. Neither of these

allocations can be overdrawn, and the Bank does not guarantee any transaction submitted for settlement

in RITS or the FSS.

The Bank does, however, incur credit risk through the provision of liquidity to members through OMOs and

Standing Facilities to support the implementation of monetary policy and payments and settlement activity,

respectively. It also incurs credit risk through the TFF and the foreign exchange (FX) swap line to support US

dollar funding, both established in March 2020.33 The Bank manages this credit risk by lending funds via

purchase of securities under repo. Consequently, it would only face a loss if a RITS member failed to

repurchase securities sold under repo and the market value of the securities fell to less than the agreed

repurchase amount. To manage this risk, the Bank purchases under repo only highly rated debt securities

denominated in Australian dollars and lodged in Austraclear. All securities purchased under repo are

conservatively valued, and subject to haircuts and daily margin maintenance.

To enter into a repo with the Bank, an entity must meet eligibility criteria. Counterparties must be: a RITS

member and an Austraclear member (and the legal entity holding the Austraclear account must be identical

to the legal entity that is a participant in RITS); subject to ‘appropriate regulation’ (for example, an entity

regulated by APRA, or a clearing and settlement facility overseen by the Bank); and able to ensure efficient

and timely settlement of transactions within Austraclear. To access the Bank’s Standing Facilities, an

approved counterparty must also settle its payments across its own ESA.34

31 To limit the need for ESA holders to contract intraday repos on a regular basis, the Bank may agree to contract an amount

of open repos (at the cash rate target) over and above the stipulated minimum position. This includes ESA holders that do not participate directly in the settlement of DE obligations in RITS. These maximum permitted positions in open repos are reviewed at least annually.

32 For further details, see https://www.rba.gov.au/mkt-operations/resources/tech-notes/standing-facilities.html. 33 For operational notes on the TFF, see . 34 For more information on the Bank’s counterparty eligibility criteria, see .

https://www.rba.gov.au/mkt-operations/resources/tech-notes/standing-facilities.htmlhttps://www.rba.gov.au/mkt-operations/term-funding-facility/operational-notes.htmlhttps://www.rba.gov.au/mkt-operations/term-funding-facility/operational-notes.htmlhttps://www.rba.gov.au/mkt-operations/resources/tech-notes/eligible-counterparties.htmlhttps://www.rba.gov.au/mkt-operations/resources/tech-notes/eligible-counterparties.html


A.9 Access and Participation

Since settlement in RITS occurs using central bank money, only institutions that hold an ESA with the Bank

can be settlement participants in RITS. Furthermore, since RITS is the only means of access to ESAs, all ESA

holders must be RITS members and meet its operating conditions. The eligibility criteria to hold an ESA with

the Bank therefore effectively represent the eligibility criteria for settlement participants in RITS. Policy on

ESA eligibility is set by the Bank’s Executive Committee, and is available on the Bank’s website.35 The policy

has been designed to be fair and open, and to promote competition in the provision of payment services

by allowing access to all providers of third-party payment services, irrespective of their institutional status.

An updated ESA policy was published in July 2019 (see section 3.3.1).

ADIs are assumed to provide third-party payment services as part of their business so they are eligible by

default. Australian-licensed CCPs and SSFs with payment arrangements that require Australian dollar

settlement are also eligible to hold an ESA.36 Only ESA holders that are also full participants or settlement

participants as defined in the NPP Regulations are eligible to settle NPP payments in the FSS.

The ESA eligibility policy sets a number of risk-based participation requirements, including around

operational capacity and access to liquidity. These are designed to reduce the likelihood that an individual

member experiences an operational or financial shock that could disrupt the system more broadly. The

application of participation requirements aims to be proportional to a prospective member’s expected

payments business in RITS.

ADIs with aggregate outgoing RTGS transactions of less than 0.25 per cent of the total value of wholesale

RTGS transactions may use an agent to settle their RITS transactions, rather than settling directly across

their own ESAs. This reduces the operational burden on smaller RITS members. Payments settled on an

RTGS basis through the FSS are not included in the calculation of the 0.25 per cent threshold.

The Bank’s ESA policy limits the scope for material risks to arise from tiered participation arrangements.

Only ADIs individually accounting for less than 0.25 per cent of the total value of wholesale RTGS

transactions may settle through an agent. Consequently no individual indirect member would be expected

to pose material risk to either its agent or the system more broadly. Further, to reduce dependence on its

agent, a member that participates indirectly has the option to hold a ‘dormant’ ESA for use in an extreme

contingency where the availability or effectiveness of the RTGS services provided by its agent are

compromised. To ensure that RITS has sufficient information about indirect participation, agents acting for

ADIs that participate indirectly are required to report the value and volume of their ADI clients’ outgoing

RTGS payments to the Bank on a quarterly basis. This information is used to monitor compliance with the

0.25 per cent threshold.

35 The ESA Policy is available at . 36 Under the Bank’s Financial Stability Standards for Central Counterparties a CCP that the Bank determines to be

systemically important in Australia and has Australian dollar obligations is required to settle its Australian dollar obligations across its own ESA or that of a related body corporate acceptable to the Bank. The updated ESA Policy places an equivalent requirement on SSFs that are systemically important in Australia and have Australian dollar obligations.

https://www.rba.gov.au/payments-and-infrastructure/esa/


Appendix B: Detailed Assessment of the Reserve

Bank Information and Transfer System

This appendix sets out the detailed assessment of how well RITS observed the Principles developed by CPMI

and IOSCO as at the end of March 2020. The Assessment focuses on RITS’s role as a wholesale RTGS system;

in respect of the FSS, only the interaction with the core (wholesale) RITS system is assessed (see section 2

for more information on the assessment scope). This Assessment was produced by the Bank’s Payments

Policy Department, which is the functional area responsible for oversight of the payments system, primarily

drawing on information provided by the Bank’s Payments Settlements Department, which is the functional

area responsible for operating RITS. In 2019, Payments Policy Department began to expand its direct

engagement with other key departments involved in the operation and governance of RITS, such as the

Information Technology Department. The conclusions of this assessment have been approved by the

Payments System Board. In its assessment, Payments Policy Department has applied the rating system used

in the CPMI-IOSCO Disclosure Framework. Under this framework, observance of each of the applicable

Principles is rated according to the following scale:

Observed – Any identified gaps and shortcomings are not issues of concern and are minor, manageable

and of a nature that the FMI could consider taking them up in the normal course of its business.

Broadly observed – The assessment has identified one or more issues of concern that the FMI should

address and follow up on in a defined timeline.

Partly observed – The assessment has identified one or more issues of concern that could become

serious if not addressed promptly. The FMI should accord a high priority to addressing these issues.

Not observed – The assessment has identified one or more serious issues of concern that warrant

immediate action. Therefore, the FMI should accord the highest priority to addressing these issues.

Not applicable – The standard does not apply to the type of FMI being assessed because of the

particular legal, institutional, structural or other characteristics of the FMI.

The ratings of RITS against the relevant Principles are supplemented by detailed information under each

key consideration that is relevant to the assessment. In assessing RITS, Payments Policy Department has

relied on guidance on the Application of the Principles for Financial Market Infrastructures to Central Bank

FMIs published by CPMI and IOSCO in August 2015.37

Note: Principles 6 (margin), 10 (physical deliveries), 11 (central securities depositories), 14

(segregation and portability), 20 (FMI links) and 24 (disclosure of market data by trade repositories)

are not applicable to systemically important payment systems and have therefore been omitted.

1. Legal Basis

37 See CPMI-IOSCO (2015), Application of the Principles for financial market infrastructures to central bank FMIs, August.

Available at .

http://www.bis.org/cpmi/publ/d130.pdf


A payment system should have a well-founded, clear, transparent and enforceable legal basis for each

material aspect of its activities in all relevant jurisdictions.

Rating: Observed

1.1 The legal basis should provide a high degree of certainty for each material aspect of a payment

system’s activities in all relevant jurisdictions.

RITS is owned and operated by the Bank. The legal basis of all key aspects of RITS is set out in the

RITS Regulations, which cover the operation of RITS, and the rights and obligations of members and

the Bank.38 Standard agreements are executed to bind each member to the RITS Regulations. In

addition to the RITS Regulations, the following key aspects of RITS activities are supported by

Australian legislation and additional contractual arrangements.

RTGS feeder systems

RITS accepts settlement instructions from approved feeder systems. Admission as a feeder system

is by specific reference in the RITS Regulations. The RTGS feeder systems are the SWIFT PDS,

Austraclear, CHESS RTGS and NPP. 39 The SWIFT PDS is administered by Australian Payments

Network (AusPayNet) under its HVCS. The Bank and AusPayNet each have contractual

arrangements with SWIFT covering the SWIFT PDS. The Austraclear and CHESS RTGS feeder systems

are operated by Austraclear and ASX Settlement, respectively. Both entities are wholly owned

subsidiaries of ASX Limited. The Bank has separate contractual arrangements with Austraclear and

ASX Settlement covering these feeder systems. The NPP feeder system is operated by New

Payments Platform Australia Limited (NPPA) and is covered under a contractual arrangement

between the Bank and NPPA.

Settlement finality

The RITS Regulations state that settlement is final when the ESAs of the paying and receiving

members in RITS are simultaneously debited and credited, respectively. The irrevocability of

payments settled in RITS is protected by RITS's approval as an RTGS system under Part 2 of the

Payment Systems and Netting Act 1998 (PSNA). With this approval, a payment executed in RITS at

any time on the day on which a RITS member enters external administration has the same standing

as if the member had gone into external administration on the next day (in the case of a winding

up) or as if the member had not gone into external administration (in the case of other forms of

external administration). Accordingly, in the event of insolvency all transactions settled on the day

of the insolvency are irrevocable and cannot be unwound simply because of the event of external

administration (i.e. they are protected from the ‘zero-hour’ rule). The PSNA also, among other

things, clarifies that resolution of a financial institution is a form of non-terminal administration,

and that a payment executed in RITS when a member has gone into non-terminal administration

has the same effect it would have had if the member had not gone into non-terminal

administration.

The irrevocability of settled transactions originating from the Austraclear and CHESS RTGS feeder

systems is supported by their respective approvals as RTGS systems under Part 2 of the PSNA.

38 The RITS regulations are available at: . 39 The CHESS RTGS feeder system provides for the delivery-versus-payment model 1 settlement of equities transactions

executed on ASX. This system is currently not used.

https://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/regulations.pdfhttps://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/regulations.pdf


Netting arrangements

In the unlikely event that RITS is unavailable for a significant period of time, payments arising from

Austraclear and the SWIFT PDS can be settled using contingency arrangements. These

arrangements involve the multilateral netting and settlement of transactions arising from those

systems. The irrevocability of settlement under these contingency arrangements is supported by

the approval of Austraclear and HVCS as netting arrangements under Part 3 of the PSNA. The

approval of HVCS establishes the legal basis for the netting of SWIFT PDS payments.

While RITS is primarily an RTGS system, it also provides for the final settlement of net obligations

arising in other payment and settlement systems. This is either through the LVSS or the batch

feeder functionality.40 RITS’s approval under Part 2 of the PSNA does not ensure the legal certainty

of the netting of the underlying obligations. Nevertheless, the majority of the value of obligations

settled in these multilaterally netted batches originates from AusPayNet clearing streams and

transactions settled in the CHESS and eftpos batches, which are approved netting arrangements

under Part 3 of the PSNA.

Enforceability of repurchase agreements

The enforceability of repos in the event of a default also requires a high degree of legal certainty.

Repos with the Bank are governed by an international standard agreement – Securities Industry

and Financial Markets Association (SIFMA)/International Capital Market Association (ICMA) Global

Master Repurchase Agreement (GMRA) (2011 version) – as amended by an annexure to the RITS

Regulations. This agreement sets out, among other things, what constitutes default and the

consequential rights and obligations of the parties. In the event of a default, the agreement allows

the non-defaulting party to terminate the agreement, calculating the net obligation based on the

prevailing market value at the time the contract is closed out. Close-out netting provisions included

in repo contracts with RITS members provide for the immediate liquidation of collateral in the

event of default. This right is supported by Part 4 of the PSNA.

1.2 A payment system should have rules, procedures, and contracts that are clear, understandable,

and consistent with relevant laws and regulations.

To facilitate a clear understanding of RITS rules and procedures, the RITS Regulations are

supplemented by user guides and other documentation that explain RITS requirements and

functions. This material facilitates existing and prospective members' understanding of the RITS

Regulations and the risks they face by participating in RITS.

The Bank seeks external legal advice on material amendments to the RITS Regulations and

associated contractual agreements, including, where relevant, on the interaction of such

amendments with Australian and New South Wales laws and regulations.

1.3 A payment system should be able to articulate the legal basis for its activities to relevant

authorities, participants, and, where relevant, participants’ customers, in a clear and

understandable way.

At a high level, the legal basis for RITS is articulated in a clear and understandable manner on the

Bank’s website and the RITS Information Facility.41,42

40 A small number of obligations sent through LVSS are settled on a gross basis. 41 See . 42 The RITS information facility is an information web portal for operational users of RITS. See

http://www.rba.gov.au/rits/info/aboutrits.htm

https://www.rba.gov.au/payments-and-infrastructure/rits/legalframework.html


1.4 A payment system should have rules, procedures, and contracts that are enforceable in all

relevant jurisdictions. There should be a high degree of certainty that actions taken by the

payment system under such rules and procedures will not be voided, reversed, or subject to

stays.

To ensure that the RITS Regulations and associated contractual agreements are enforceable, the

Bank seeks external legal advice on material amendments to these documents.

There have been no court cases that have tested the RITS legal framework.

1.5 A payment system conducting business in multiple jurisdictions should identify and mitigate the

risks arising from any potential conflict of laws across jurisdictions.

The RITS Regulations are governed by New South Wales law and require that all members submit

to the non-exclusive jurisdiction of the courts of New South Wales. Since 2011, the Bank has

required foreign RITS applicants to provide a legal opinion affirming that the RITS membership legal

documents constitute valid, legally binding and enforceable obligations.43 This opinion must cover

whether the courts in the home jurisdiction of the applicant will give effect to the choice of New

South Wales law as the governing law and whether the judgement of an Australian court would be

enforceable in the home jurisdiction without retrial or re-examination. Following the signing of new

RITS Membership Agreements in 2017, the Bank continued to work with foreign members on the

provision of legal opinions that meet the Bank’s requirements in cases where members had not

provided a legal opinion previously or their previous opinion required updating. Legal opinions have

been received from the majority of foreign members. The Bank expects to complete this process

during the next assessment period.

43 For further details on the scope of the legal opinion, see

.

https://www.rba.gov.au/rits/info/pdf/Signing_Instructions.pdf


2. Governance

A payment system should have governance arrangements that are clear and transparent, promote the

safety and efficiency of the payment system, and support the stability of the broader financial system,

other relevant public interest considerations, and the objectives of relevant stakeholders.

Rating: Observed

Note: In line with the CPMI-IOSCO guidance on the Application of the Principles to Central Bank FMIs, as

RITS is operated as an internal function of the Bank, Key Considerations 2.3 and 2.4 are not intended to

constrain the composition of the Bank’s governing body or that body’s roles and responsibilities.

2.1 A payment system should have objectives that place a high priority on the safety

Documents

Assessment of the Reserve Bank Information and Transfer … · 2020. 6. 11. · Assessment of the Reserve Bank Information and Transfer System May 2020 Contents 1. Executive Summary